Nvidia CEO Jensen Huang gives a keynote speech at the Consumer Electronics Show on January 6, 2025 in Las Vegas, Nevada.
Patrick T. Fallon | AFP | Getty Images
Nvidia CEO Jensen Huang said the market miscalculated the threat of AI to software companies on Wednesday, hours after the semiconductor giant issued an upward revenue forecast on the back of strong demand for AI.
“I think the market got it wrong,” Huang told CNBC’s Becky Quick, pushing back on concerns that AI agents could cannibalize the enterprise software industry.
Instead, we expect a wide range of software companies to use agent AI to develop software and increase efficiency.
Describing it as “counterintuitive,” Huang said AI agents would replace these software tools rather than replace them.
“This is why we say agents are the users of the tool,” he added.
He mentioned his internet browser, microsoftAn example of a tool used by an AI agent is Excel.
“All the tools we use today are cadence or synopsis or ServiceNow or SAPthese tools basically exist for a good reason. These agent AIs become intelligent software that uses these tools on our behalf and helps us be more productive,” Huang added.
“No one can deliver a better service than ServiceNow. They’ll come up with agents that are very finely tuned and optimized for the work they’re using their tools for.”
“Ultimately, we need tools to get the work done and get the information back in a way that we can understand,” he says.
The comments came after Nvidia reported that its fiscal fourth quarter revenue rose 73% year over year to $68.13 billion, beating analysts’ estimates of $66.21 billion.
The company also issued a positive outlook, with first-quarter sales expected to be $78 billion, plus or minus 2%, well above analysts’ expectations of $72.6 billion.
Investors were weary of the large increase in spending on AI hardware that may not be sustainable, raising concerns about a bubble forming in the sector.
Stocks of software service providers have plummeted in recent months. Analysts have warned that AI will “eat” software in the long term, but their views on the risks and the fundamentals behind the latest selloff appear to be divided.
Software stocks were mixed in after-hours trading following Hwang’s comments. Synopsys was down 3.6% after the close, while Cadence was down 0.9%. ServiceNow was little changed and SAP rose 0.3%.
“People need to remember that everything tends to be overbuilt, whether it’s railroads, canals, the Internet, etc., and you see who’s going to be the winner and who’s going to be the loser,” Dan Niles, founder and portfolio manager at Niles Investment Management, told CNBC after Huang’s interview.
Niles warned that not all companies will survive unscathed, as AI threatens to automate workflows, squeeze prices and lower barriers for new competitors to enter the market.
“There are actually some companies in the software space that go to zero,” Niles said. He added that the most resilient players will be in the database and cybersecurity sectors.
Nvidia shares rose as much as 2% in after-hours trading after the quarterly results were announced.
The decline in software stocks this year has weighed on the S&P 500 Software and Services Index, which was down nearly 23% as of Wednesday’s close.
But CNBC’s Jim Cramer dismissed the doomsday predictions, suggesting that concerns about the existential threat to software companies from AI are overblown and that the reality is less dire.
“Software companies are survivors. They can merge. They can adapt. They can really do whatever it takes to stay in business,” Kramer said on “Mad Money” Wednesday.
“However, they are priced for perfection and seem to have the feel of, say, a scrum in rugby. And we are not paying for a scrum,” he added.
